JUDGMENT
1. The petitioner, a Hindu undivided family, was assessed to income-tax. In 1968, a plot of land at Chandigarh in sector 17-C was purchased. Constructions were, thereafter, started over the plot in 1969. It continued up to 1975, relevant for the assessment year 1976-77. During the assessment years 1968-69 to 1976-77, the petitioner disclosed investments in the construction of the house at Chandigarh as under:
(Rs.)
1968-69
45,000.00
1969-70
1,38,859.00
1970-71
1,01,374.00
1971-72
85,416.00
1972-73
68,699.00
1973-74
1,39,257.00
1974-75
48,000.00
1975-76
1,20,230.00
1976-77
22,062.00
Total
7,68,897.00
2. Thus, the total investment up to 1976-77 shown by the petitioner was in the sum of Rs. 7,68,897. Assessments for the years 1968-69 to 1973-74 were simultaneously taken up and completed by the Income-tax Officer, Special Ward, Ajmer, on May 13, 1974. In the said assessment proceedings, the petitioner submitted a letter dated April 29, 1974, detailing therein the amount of investment and sources thereof. He also submitted a valuation report from Messrs. Basant Singh and Company, Engineers, Architects, Gazetted Valuers and Construction Agency, No. 18, Sector 3-A, Chandigarh, dated February 4, 1974. As per the report of the aforesaid valuer, the cost of construction at the end of March, 1973, including the cost of land, came to Rs. 5,18,400. It was verified and certified by the valuer that on completion, the total cost would be Rs. 7,01,500 including cost of land, Rs. 92,539. The Income-tax Officer completed assessments for the assessment years 1968-69 to 1973-74 on May 13, 1974.
3. On August 25, 1977, the Income-tax Officer completed the assessment for the year 1975-76.
4. While framing the assessment for the year 1976-77 on January 24, 1978, the Income-tax Officer noted in the order sheet that the report of the Valuation Officer regarding investment in the Chandigarh property had not been received. Since a considerable time had already elapsed, he stated in the order sheet that no purpose would be served in keeping the proceedings pending. He stated “several reminders in this regard have already been sent and it has been gathered that the valuation is at the final stage. The assessment is being completed and if it is found that the unexplained investment had gone into the construction of Chandigarh property, assessment would be reopened under the provisions of the Income-tax Act on receipt of the valuation report from the Valuation Officer.” Thereafter, two notices were served under section 148 of the Income-tax Act reopening the assessments for the years 1975-76 and 1976-77 on the basis of the valuation report which was received on March 14, 1978.
5. The Valuation Officer sent his report on March 14, 1978, intimating that the cost of construction, excluding the cost of land, was Rs. 10,73,900. As against the same, the assessee had disclosed the investment to the Department of Rs. 6,76,358. Thus, the difference between the cost of construction as estimated by the Department's Valuation Officer and the investment disclosed by the assessee worked out to Rs. 3,97,542.
6. On the ground that the assessee had not fully and truly accounted for the investment made in the property, the Income-tax Officer reopened the original assessments made for the year 1974-75 by issuing a notice under section 147(a) read with section 148 of the Act. Ultimately, reassessment was made by making an addition of Rs. 3,14,907 during this assessment year. Thus, the amount of unexplained investment was reduced from Rs. 3,26,872 to Rs. 3,14,907. Similar action was taken by the Income-tax Officer in respect of the subsequent year 1975-76 for which an addition of Rs. 70,670 was made in the assessment order.
7. The total of the two additions made for the years 1974-75 and 1975-76 came to Rs. 3,85,577 which was unexplained investment. The addition of the two amounts for these two years was the difference between the amount estimated by the valuer and the amount shown by the petitioner.
8. Aggrieved by the order of the Income-tax Officer, an appeal was filed by the assessee which was allowed by the Commissioner of Income-tax with the following observations:
“… In this case, as stated earlier, the appellant had intimated the fact about the construction of the house property at Chandigarh, it had also furnished details showing the investment made by it from time to time and had also furnished details showing the amount of rent realised by it from the tenants. Now it was for the Income-tax Officer to examine them and come to a reasonable conclusion. In case he doubted the correctness of those details, he could have made necessary additions at the time of the original assessment and it was not correct for him to leave the matter open for assessment to be made at some later date under section 147(a) of the Act. Considering the facts of the case and the legal position explained above, I hold that the objections raised by the learned counsel against initiation of reassessment proceedings is well founded. It is accordingly upheld.”
9. As a result, the Commissioner of Income-tax allowed the appeal of the assessee and cancelled the assessment orders of the two years.
10. Thereafter, the Department went up in second appeal before the Income-tax Appellate Tribunal. The Tribunal also rejected the appeal sustaining the order of the Commissioner of Income-tax (Appeals). It held that the Income-tax Officer was not only the assessing authority but was also an investigating authority. Having failed to make inquiry regarding the investment made on the construction during the years under assessment, the Assessing Officer could not blame his omission to be that of the assessee and legally could not reopen the assessment under section 147(a). The Tribunal also examined the alternative case argued before it under section 147(b) and held that the report of the valuation cell could not be a subsequent information and as such, no proceeding under section 147(b) could be taken. The relevant portion of the Tribunal's judgment is quoted below:
“… He himself postponed the examination of the investment until the date of receipt of the report of the valuation cell, which he would have obtained at the stage of the original assessment itself. On these facts, it cannot be said that the Income-tax Officer received any subsequent information which was already considered to be the material evidence by the Income-tax Officer at the stage of the original assessments, but the procurement of which was deliberately postponed by the Income-tax Officer to a further date, does not come within the purview of section 147(b)…”
11. Thereafter, the application filed by the Department under section 256(2) was rejected by the High Court by holding that:
“In our opinion, this application has to be dismissed. It is not a case where the facts on which notice for reassessment was given attracted not only clause (a) but also clause (b) of section 147 of the Act. The basis on which clause (b) is attempted to be relied on by the Revenue at this belated stage was not even communicated to the assessee while reopening the assessment. This alone is sufficient to indicate that this question based on clause (b) of section 147 of the Act does not really arise for decision out of the Tribunal's order.”
12. Against the judgment of the High Court, an application for special leave to appeal before the Supreme Court was filed by the Revenue but that too was rejected. In this manner, the reassessment proceedings started by making additions for the assessment years 1974-75 and 1975-76 in the sum of Rs. 3,85,577 were held to be illegal and became final. It was held that neither section 147(a) nor section 147(b) applied. Subsequently, proceedings for reassessment in respect of the aforesaid four assessment years, i.e, 1970-71, 1971-72, 1972-73 and 1973-74, were taken. It is the notices issued in respect of these assessment years that are the subject-matter of decision in these writ petitions. What strikes one at the threshold is that the validity of these notices was challenged on the ground that once the attempt of the Income-tax Department to reassess the petitioner under clauses (a) and (b) of section 147 had failed, it was not open to the Department to make an effort to include those additions for the years 1970-71 to 1973-74. Exactly the same controversy was the subject-matter of decision for the later years, i.e, 1974-75 and 1975-76, and, therefore, the Department could not take the same plea on which adjudication had already gone against it. Reassessment proceedings in respect of the assessment years 1974-75 and 1975-76 had been done for the same transactions, and consequently, the present proceedings were barred under the law.
13. The Commissioner of Income-tax (Appeals) as well as the Tribunal had found that the Income-tax Officer had no jurisdiction and power to initiate proceedings for reassessment by asserting that the income escaped assessment due to mistake and failure on the part of the assessee. The escapement in these years has also been justified by the Department on the basis of the valuation report. It has been averred in paragraph 8 of the counter-affidavit that “the valuation report disclosed that the cost of construction excluding the value of the land comes to Rs. 10,73,900 as against the investment shown by the petitioner. The petitioner has clearly mis-stated this fact and the writ petition…”
14. About this very valuation report, adjudication had already been made and that has become final. The Department wanted to make additions of the amount of difference between the investment shown in the returns and the valuation report. That very valuation report is being resorted to in justification of the notices now issued. A decision reached in the years 1974-75 and 1975-76 would be a composite factor in the determination of a similar point in these years and, while reopening these proceedings which are the subject-matter of decision in the present writ petition, the Department has not alleged that fresh facts came to its notice which were not taken into consideration while assessment was made in respect of the assessment years 1970-71 to 1973-74. The reason given in the counter-affidavit filed in the present writ petitions a portion of which has been quoted above, is the valuer's report which opined that the petitioner had invested Rs. 10,73,900 whereas he had disclosed only Rs. 6,76,358. The assessments for the years 1974-75 and 1975-76 were made treating the disclosure by the assessee to be correct. The Commissioner of Income-tax (Appeals) dealing with the same held that the petitioner could not be held guilty of non-disclosure. This very controversy is for consideration in these years, viz., 1970-71 to 1973-74. The amount of non-disclosure was added in the aforesaid two years by the Income-tax Officer. Having failed in those two years, the Income-tax Officer intends to distribute the excess amount in the four years which are under consideration in the present writ petitions. This is on the ipse dixit of the Department and not on any concrete fact or basis. There should be a rational connection which postulates a direct nexus between the material coming to the notice of the Assessing Officer and the formation of the belief that there has been escapement of the income of the assessee from assessment in the particular year. It is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. If there is no rational and intelligible nexus between the reasons and the belief, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief that the conclusion would be inescapable that the Assessing Officer could not have reason to believe that any part of the income of the assessee had escaped assessment.
15. The words “reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. The Assessing Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist. The court can always examine this aspect though the declaration or sufficiency of materials cannot be investigated.
16. As to what is the worth of the valuer's report with regard to the cost of construction of building has been the subject-matter of several decisions.
17. In Smt. Amala Das v. CIT, [1984] 146 ITR 216 (P&H), it was held that reopening of assessment on the basis of a subsequent valuation report was not justified inasmuch as the report is nothing more than a mere opinion. Such a report by itself does not lead to a reasonable belief of concealment of income justifying action under clause (a) of section 147, nor does it constitute “information” justifying action under clause (b) of the said section, (see Durga Sharan Udho Prasad v. Commissioner Of Income-Tax, Bihar., [1976] 103 ITR 270 (Patna); Jawaharlal Daryavbuxmal v. Commissioner Of Income-Tax, M.P, [1982] 137 ITR 54 (MP); Haji Abdul Gaffar v. ITO, [1985] 154 ITR 1 (MP); Tarawati Debi Agarwal v. ITO, [1986] 162 ITR 606 (Cal); Abdul Majid v. ITO, [1989] 178 ITR 616 (MP); A. Shanmugham Chetty v. Commissioner Of Income-Tax., [1985] 154 ITR 331 (Mad) and Gulabrai Hanumanbux v. WTO, [1989] 178 ITR 519 (Gauhati).
18. It may be worth stating that, in the earlier assessment proceedings (for the assessment years 1974-75 and 1975-76), the Tribunal had dealt with this matter and found that the valuer's report could not be the basis for reopening of the assessment. It was also considered and held that if the Assessing Officer himself deferred assessment from 1970-71 to 1973-74 on an unjustified pretext, he could not restart proceedings under section 147(a).
19. Sri N.M Ranka, learned counsel for the petitioner, urged that, at the most, in the present cases, action could be taken under section 147(b) by the Department treating the valuer's report as “information”. Clause (b) of section 147 was not resorted to deliberately and advisedly by the Income-tax Department, as limitation provided for taking action under this provision had expired. Section 149 of the Income-tax Act provides four years of limitation from the end of the relevant assessment year; within which a notice under section 148 must be issued. In the cases falling under section 147(b) where there is no failure to file a return and no concealment, the limitation is four years from the end of the relevant assessment year. In this way, the period of four years in respect of each assessment year had already expired.
20. Sri Singhal, learned counsel for the Revenue, urged that, as the rule of res judicata cannot apply to taxation proceedings, this court cannot derive any advantage for taking the view that the notices issued under section 147 were invalid. This proposition is not disputed. However, this general rule is subject to the qualification that a finding reached in the assessment proceedings for an earlier year, after due inquiry, would not be reopened in a subsequent year, if no fresh facts are found in the subsequent assessment year. This is on the principle that there should be a finality and certainty in all litigations including those arising under the Income-tax Act. (see Commissioner Of Income-Tax, M.P-Ii v. Bhilai Engineering Corporation Pvt. Ltd., [1982] 133 TTR 687 (MP)). Learned counsel for the Revenue reminded this court of its limited jurisdiction under article 226 of the Constitution and urged that as this court does not sit in appeal over a matter such as the present one involved in these cases, this court should not quash the notices issued under section 147 and it should direct the petitioner to raise the plea taken in these writ petitions in regular assessment proceedings which would be taken up in pursuance of the same. No one can dispute this proposition. Generally, there should be no interference by the High Court in a matter such as is involved in the present cases. But, it is demonstrated that the notices had been issued under section 147 in June, 1979, to cover up the illegalities.
21. For what I have said above, the writ petitions succeed and are allowed. Notices under section 147 of the Income-tax Act are quashed. The petitioner will be entitled to get costs from the respondents.